The answer to the question for the panel was obvious. There is going to be another slump or recession. That is nearly as certain as death. For the capitalist mode of production, once it became the dominant mode of social organisation in the early part of the 19th century, has since experienced regular and recurring recessions in a cycle of booms and slumps.

Marxist economics argues that this is an inevitable feature of the capitalist accumulation process because the drive to increase the productivity of labour and boost profit among competing capitalists faces the contradiction of the tendency of the profitability of overall capital to fall. So production for people’s needs comes into conflict with production for profit at regular and recurring intervals. Indeed, according to the US Bureau of National Research, since 1857, the US economy has suffered 33 such recessions or slumps where national output has fallen for at least six months. Other capitalist economies have experienced more or less the same.

While the speakers all agreed that capitalism is heading for another slump, the question is when, what will cause it to happen and how deep would it be? I won’t go into my explanation of why and when there will be another slump here. I have done so ad nauseam in this blog. Instead, I want to consider the explanation offered by JBF.

JBF is now the main driver of the Monthly Review ‘school’ of Marxism and Marxist economics. If you want a very good in-depth account of the history of the Monthly Review school and its proponents, read this.

As I understand it, the Monthly Review school reckons that ‘competitive’ capitalism in the 19th century eventually morphed into ‘monopoly capitalism’. According to Sweezy and Baran, this meant that capitalism also entered into a state of ‘permanent stagnation’ where economic growth was much lower than in the 19th century, along with employment and investment.

As JBH put it at the conference, the issue was no longer to explain recurring slumps in capitalism but to show why there are booms at all. The answer, as I understood it, was that, were it not for regular monetary injections by central banks and speculative credit bubbles engineered by the financial sector, along with public spending stimulus by governments, then capitalism would be in permanent stagnation. At this point, the question might be asked that, given there have been nearly 20 booms and slumps since 1945, how has capitalism has found so many ways of avoiding stagnation at regular intervals?

The MR perspective is very similar to that of the ‘secular stagnation’ thesis first promoted by Keynesian economist, Alvin Hansen, just after the end of the second world war, when he forecast that the major economies would stagnate due to weak population growth and too much saving rather than spending.

The secular stagnation argument was revived recently by Keynesian economist, Larry Summers and also promoted by Martin Wolf, the Financial Times columnist. Summers reckons that economies are caught in a sort of a ‘liquidity trap’ (see Keynes), where real interest rates (after inflation) are too high so that companies and households hoard cash and won’t spend. So the only way an economy grows now is by a series of credit bubbles that will keep bursting. Wolf argues that savings are too high globally and a ‘global savings glut’ means weak global demand and thus permanently low growth. Again, I have dealt with these arguments in other blog posts.

JBF’s explanation for capitalist ‘stagnation’ is that monopoly firms now make the bulk of investment and glean the bulk of profits. As a result, they have too much capacity and too much profit which they cannot find profitable outlets for or enough demand from households. So there is too much surplus (or savings in Keynesian terms), the very opposite of what Marx argued under the ‘competitive capitalism’ of the 19th century. The problem of monopoly capitalism is ‘too much profit’ that has to be ‘absorbed’ by speculation in financial markets, arms spending and other wasteful activities to keep up demand.

As far as I could understand, JBF dismisses Marx’s law of profitability as relevant to crises under capitalism, partly because capitalism is in ‘permanent crisis’ so the law of profitability does not apply. Also as JBF put it at the meeting, “it is a chicken and egg issue”. How can we know if low profitability is caused by low investment and low income rather than vice versa? Presumably JBF and the Monthly Review School think that it is the former: namely, investment falls and profits then fall.

This view is entirely in line with the schema proposed by post-Keynesian economist Michal Kalecki, and JBF referred to Kalecki approvingly. I have dealt with the argument of Kalecki before. The post-Keynesian approach starts with the Keynesian identity: total savings equals total investment. But this is an identity – what is the causal direction? Is it from savings to investment or vice versa? The Keynesians reckon it is from investment to savings. The Marxists reckon it is from profits (the ‘savings of the capitalist sector’) to investment.

I think both theory and empirical evidence are with the Marxist view and not that of Kalecki and the Monthly Review. Above all, capitalism is a money-making economy, not a production economy. So we must start with the generation of profit to judge how a capitalist economy is doing. Yes, there will be no growth without investment, but there will be no investment without profit. And that is the main contradiction of the capitalist mode of production revealed by Marx. Over time, as capital accumulates, there is a tendency for the rate of profit to fall and thus create the conditions for a collapse in investment and recurrent crises. Profits call the tune.

Yet JBF went on to argue that it was not. First, he said that the rate of profit in the major economies had not been falling since the early 1980s, it mainly fell in the 1960s and 1970s. That suggested that the recent Great Recession could not have falling profitability as the cause (instead, we should look at financial speculation amid ‘financialisation’). At best, we could talk about low profitability rather than falling profitability.

“Data from 251 quarters of the US economy show that recessions are preceded by declines in profits. Profits stop growing and start falling four or five quarters before a recession. They strongly recover immediately after the recession. Since investment is to a large extent determined by profitability and investment is a major component of demand, the fall in profits leading to a fall in investment, in turn leading to a fall in demand, seems to be a basic mechanism in the causation of recessions.” (Jose Tapia “Does Investment Call the Tune?).

But it could not be the Marxist explanation of the costs of investment in fixed capital rising faster than the rate of exploitation of the workforce, because hi-tech equipment prices have been plummeting. It’s true that the relative price of equipment has been falling, but it is still the case that the organic composition of capital has risen in the post-war period and especially since 2000. The difference between the organic composition and the ‘value composition’ of capital is not recognised by JBF.

The MR thesis denies that there are booms and slumps inherent in the modern capitalist mode of production, because, under monopoly capital, there is only permanent stagnation interspersed with periods of speculative boom from credit bubbles. The Keynesians with a similar view reckon the answer is public spending and investment to restore demand and investment. I am not sure if JBF agrees with that. At the meeting, he was vehement in saying that there was no way out for capitalism (“Revolt or ruin”).

In a way, JBF is too pessimistic about capitalism. There is no permanent crisis. Another slump will help to destroy capital values and liquidate inefficient (zombie) firms in order to restore profitability. That will be at the expense of millions of jobs and livelihoods. In the late 19th century depression, it took six slumps to do that between 1873 and 1897. But eventually, capitalism did revive and globalised further.

That could happen again if the working classes in the major economies fail to replace the capitalist mode of production in political struggle. Capitalism could then begin a new lease of life, exploiting yet more millions in ‘emerging economies’ as cheap labour and introducing new technologies that shed labour. And, as JBF said, that will mean even more destruction of the natural world, its ecology and possibly its very existence, as the world heats up.

16 Responses to “John Bellamy Foster and permanent stagnation”

I agree with Michael Roberts here. Another deep slump or two will definitely lay the foundations for a powerful global recovery of the capitalist system. Moreover, the chances of a great socialist revolution are slim to none. In my view, the new cycle of global capitalist upswing will be dominated by Eurasian powers such as Russia, China, Iran India and other smaller states.

One more thing. I would like to ask Michael Roberts on his views about Sam Williams’ theory on the role of gold as the monetary stimulus required for the expansion of the global market. His views can be found on the critiqueofcrisistheory website.

I think the idea we are heading for another slump is almost wishful thinking. Capitalism is in fact dead. It is not a slump we are heading toward but complete social breakdown as US-sponsored globalization unravels at an ever-gathering pace. Can anybody envisage any possible alternative political-economic arrangement that could replace US-sponsored globalization and give capitalism a new lease of life? I doubt it. At least ones that would not take enormous quantities of violence to establish and that would involve the West becoming the new Third World?

I don’t think it is crystal balling to say that capitalism is now dead. Marx explained that capitalism is historically contingent and that it must therefore have a beginning, middle and end and he also said that no mode of production disappears from history until it has exhausted all of its potential. We have reached that point. US-sponsored globalization is unravelling at an ever-gathering pace. It is finished and there are not possible political economic arrangements that could possibly replace it at least not ones that would not require so much violence to establish that it would probably take the human species to its grave first. This is The End of Capitalism. It is socialism or barbarism time. Socialism or a New Dark Ages from which we will probably never escape.

As I argued before, capital costs might decrease and thus render Marx’s law as false. That is why we need to look at the decreasing amounts of live labor as time passes.

We should not look at the ratio of the constant capital to the variable capital for many reasons.

The main reason is the misconception that constant capital means dead labor but it is not. If there is no scientific progress, then after the degradation of the previous factory, we will have to build a new one.

What we end up with is only confusion.

The decreasing amounts of new live labor as time passes explains the decrease of the amount of new profit and the decrease of new investments(as a sum of money, not as a decrease in actual material products).

The only way for capitalism to get away from this is to create new consumer needs or to increase the working force. Both of these would increase the sum of live labor and thus the sum of profits.

As it is correctly pointed, there is negative feedback of previous profits to new ones. It is true that this creates credit bubbles.

But we cannot understand why the bubbles increase if we do not understand why workers are not able to pay their debts. Simply put, the amount of work and compensation that they can get decreases as times passes.

This is the correct way to use the labor theory of value to explain the crises. Otherwise, we simply hit ourselves in the foot.

“In the late 19th century depression, it took six slumps to do that between 1873 and 1897. But eventually, capitalism did revive and globalised further.”

Capital continued to globalize during the long deflation itself. The Meiji restoration in Japan, Bismarck in Germany, etc.– the expansion of imperial rules; British investment in US railroads and in Argentina; US investment, operation and ownership of railroads in Mexico…. the long deflation was not a depression.

Right there is no permanent crisis, but another mere slump is not going to do enough to destroy capital values, cure overproduction, and “right” the listing (container) ships of capital. Something a bit more severe is required– like sinking some of those ships.

“Above all, capitalism is a money-making economy, not a production economy.” To me, this means that capitalists invest to accumulate money (exchange value), not products (use values): m–p–m’. In other words, capitalists don’t believe in bubbles and are amazed when they burst. I think you underestimate the subtly of JBM’s (and Sweezy/Baron’s argument, as well as the importance of war in creating booms of destruction/reproduction.

“As I understand it, the Monthly Review school reckons that ‘competitive’ capitalism in the 19th century eventually morphed into ‘monopoly capitalism’. According to Sweezy and Baran, this meant that capitalism also entered into a state of ‘permanent stagnation’ where economic growth was much lower than in the 19th century, along with employment and investment.”

Indeed the schema of a “competitive capitalist” stage of history is key to the MR ditching of Marx’s Capital analysis. JBF states this very clearly in “The Theory of Monopoly Capitalism”, where Marx’s theory is characterized as a “model” of mid-19th century English capitalism. This “model” was rendered obsolete, according to the MR school, but the subsequent “era” of “monopoly finance capital”.

But in fact much of the Progressive and Marxist Left, at least here in the USA, believes in this same stagist historical schema. The latter through “Comintern Marxism” invoking the authority of Lenin to back it up, though Robert’s post on “Modern imperialism and the working class” shows that some Marxist thinkers are beginning to break from the “Germanocentric” Hilferding “finance capital” definition that Lenin relied upon.

The truth is that capitalism can’t function without competition in some “mode” or another, competition varying with the scale and scope of the productive forces and the concentration and centralization of capital.

The ROP on *productive* capital of course drives the business cycle and therefore the tempo of accumulation *across* multiple business cycles. What is not to be overlooked is that the “accumulation regime” – the precise way that economics combines with politics (and therefore the class struggle) via the agency of the state and its actors – undergoes a “deformation” across multiple business cycles, the regime tending towards dysfunction. This deformation takes the economic form of non-productive investment in R.E., finance capital and (not to be gotten into here) commercial arbitrage. In the short run, within the current business cycle, these can counteract the fall in the ROP for capitalists, but longer run these non-productive investments build up a structural bias against productive investment to overcome the fall in the ROP. This finally results in the observed ‘stagnation’.

This is simply the symptom of the historic exhaustion of the accumulation regime. I think we have already arrive at that point, by which I meant the exhaustion of the “Golden Age” regime set up after WW2. Which the Reagan-Thatcher counterrevolution did not overthrow – Social Security and the NHS still exist.

“The truth is that capitalism can’t function without competition in some mode or another…varying with the scale and scope of the productive forces and concentration and centralization of capital.”

Isn’t it also true that ttrpf resulted in the monopolistic concentration of capital in the productive sectors of capitalism? And that the resulting stagnation that took effect, first in the United States 20 years after WW2, pushed both the de-industrialization and financialization processes?in order to save the system? In other words, is it possible to accept the above as true while maintaining that competition still is essential to the capitalist mode of production–based as it is on private productive property–but has been displaced to competing groups of financiers who control productive enterprises and who even hedge against their own holdings in the heated environment of what you call “the historic exhaustion [stagnation? fetishistic bubbles?] of the accumulation regime”?

Personally I can think of a way for capitalism to get a new lease on life. Nationalization of finance followed by pouring that finance in to the productive economy. Wacky I know yet actually I believe it has been a major part of China’s success, strange people don’t focus on that and instead mainly on the cheap wages.

Capital won’t be produced, if the workers take a notion to withdraw their labour power and time from their workplaces. If workers begin to understand that they are wealth producers, they may begin to grasp that the wage system is exploitation and can never be fair.

If the left began telling the workers this, then capitalism would die. Otherwise, wages system of slavery will go on forever.

I agree with Mike Ballard, capitalism, short of an apocalypse, goes on until the wage slaves say otherwise. There are no technical revolutions! Though technology can be the most revolutionary impulse of all.

Frighteningly slavery lasted centuries, wage slavery, at least in the west, is not as oppressive as slavery. So if slavery lasted centuries then capitalism can go on for a few more centuries, no problem.

We are in a post post capitalist system, the main intellectual challenges to capitalism have all fallen down in one way or another. Everyone hates capitalism but can’t see the alternative.

The rate of profit is a total irrelevance in this regard, as is stagnation, boom or slump.

If German imperialism under the 4th Reich succeeds in importing anything between 100 to 300m new workers as envisioned in the UNs report on Replacement Migration then theoretically we will enter a new barbarism.
But the likelihood of the 4th Reich succeeding where the 3rd failed or in restoring profitability via the absolute penury of workers and accepting that there won’t be capitalist breakdown is living in cloud cuckoo land.
I have heard Choonara speak and his only real issue is why the neoliberal EU hasn’t unified with Asia and Africa. All else are just words to justify this corporate NWO agenda.